Bitcoin Is in Wild Upheaval After The Cancellation of the Segwit2x Fork

The cryptocurrency market is experiencing a complex shakeup this weekend, with a recently created digital token called Bitcoin Cash (BCH) up nearly 130% in two days, even after retreating substantially from an even bigger spike. Meanwhile, the original Bitcoin (BTC) is down by roughly 15% over the same span. Bitcoin Cash’s total market value, after briefly overtaking Ethereum’s to make BCH the second most valuable cryptocurrency, now stands at $25 billion.

The swings come in the wake of this week’s cancellation of a ‘hard fork,’ or forced split, of Bitcoin. The proposed fork would have created a new version of Bitcoin, known tentatively as Bitcoin 2x after the upgrade plan behind it, Segwit2x. Bitcoin Cash appears to be attracting investors and network operators, or miners, who had supported the 2x fork.

As recently as September, Segwit2x was being touted as a strong solution to Bitcoin’s years-long block size dispute. Bitcoin upgrades are implemented democratically, but the block size fight has resisted consensus solutions, even as the problem it seeks to address — slow confirmation of Bitcoin transactions— has become increasingly serious.

One faction believes that Bitcoin should allow its transaction records, or blocks, to be bigger. That would make transactions cheaper and faster for users, but servers (also known as miners) more power hungry, risking dangerous centralization. Their opponents believe that Bitcoin should be a gold-like “store of value” more than a cash-like instrument, and that congestion can be mitigated without drastically changing the size of archive files — mostly by using secondary systems to conduct more transactions outside of the main blockchain.

Bitcoin Cash was itself an outcome of this dispute. It was created through a hard fork in early August — an event seen as something of a footnote at the time – and is distinguished from Bitcoin primarily by its larger block size.

Segwit2x was intended to be a more moderate solution, giving both factions a bit of what they wanted. But it still couldn’t gain enough support to be implemented on the primary Bitcoin blockchain. When they announced its cancellation this week, Segwit2x organizers concluded that forcing a fork, or the creation of a separate 2x network, would “divide the community and be a setback to Bitcoin’s growth.”

While many supporters of smaller blocks celebrated the cancellation of the 2x fork, we may be seeing a functionally similar weakening of Bitcoin play out anyway. According to CoinDesk and the tracking site Fork.lol, Bitcoin Cash’s total cryptographic power, or hashrate, passed Bitcoin’s early Sunday morning (GMT).

Bitcoin’s total dollar value is still more than four times higher than Bitcoin Cash’s, but the hashrate and price shifts have led some to predict that Bitcoin Cash will supplant Bitcoin as the leading cryptocurrency blockchain within months. That may be a stretch, but it’s true that transaction backlogs on the classic Bitcoin network are still an issue, and Bitcoin Cash claims to solve it. Moreover, analyst Willy Woo told CoinDesk that Bitcoin Cash is now heavily backed by Chinese traders and miners, making BCH a “strategic and geopolitical bet” on Chinese influence.

UPDATE: After its wild weekend ride, Bitcoin Cash crashed on Monday, while bitcoin regained lost ground.